Glossary of U.K. Mortgage terms
These definitions are those commonly used within the lending industry in UK and abroad.

Accident, Sickness & Unemployment Insurance (ASU)
Insurance which pays all or a percentage of your monthly mortgage payment if you cannot work due to an accident, sickness or redundancy. Also known as Payment/Income Protection Insurance, Accident, Sickness and Redundancy Insurance (ASR) or Mortgage Repayment Protection (MRP) or Mortgage Payment Protection Insurance (MPPI).


Accidental Damage Cover

Extra insurance on your buildings and/or contents insurance policy to cover you against accidental damage to the structure of your property and/or its contents.

Administration Fee

A fee paid to the lender to cover the costs of processing the application. May also include the Valuation Fee.

Adverse Credit

The term applied to someone with a poor credit history owing to late mortgage, rent or credit payments, County Court Judgements (CCJs) or bankruptcy.

Annual Percentage Rate (APR)

An interest rate quoted by lenders to help compare the true cost of different mortgages. The APR takes into account all fees and charges applied to the mortgage as well as the monthly payments over the life of the loan.

Applicant(s)

The individual or individuals who apply for a mortgage and whose name(s) will appear on the mortgage documents.

Arrangement Fee

A fee to cover administration, usually for arranging special rate mortgages. Other names include Application Fee, Booking Fee, Reservation Fee.

Assignment

The term used when the ownership of a policy (for example, an Endowment or Personal Pension Plan) is legally transferred. In the case of mortgages, the ownership of a policy is usually transferred to a lender to ensure that the proceeds of the policy are used to redeem the loan.

Base Rate

The interest rate from which lenders set their rates for lending and savings products. It is usually based on the Base Rate set by the Bank of England.

Basic Income

Gross salary before taxes, excluding overtime, bonuses, commission etc.

Booking Fee

A fee to guarantee that a special rate will be available, provided that the mortgage application is received by a given date. Also called a Reservation Fee.

Buildings and Contents Insurance

Combined insurance covering both the structure of the property, and its contents.

Buy-to-Let Mortgage

A mortgage designed for those wanting to buy a property with the intention of letting it to others

Cap and Collar Mortgage

A mortgage with a set maximum and minimum interest rate over a given period. The Cap defines the maximum rate and the Collar the minimum rate. The interest rate can fluctuate between these rates for the period of the product.

Capped Rate

An interest rate that is guaranteed not to rise over a given period, but which can fall during that period.

Capped Rate Mortgage

A mortgage where the interest rate is guaranteed not to rise above a maximum level over a given period, but which can fall during that period. See also Cap and Collar Mortgage.

Cash Back

A sum of money paid to the borrower when a 'Cash Back Mortgage' completes. It may be a fixed amount, or a percentage of the mortgage.

CAT Mortgage

A mortgage that meets the government's benchmark standard for offering a clear and fair deal. CAT mortgage minimum conditions include: interest calculated daily; no separate charge for mortgage indemnity guarantee; all additional fees disclosed up front; no compulsory insurance linked; no early repayment penalties on variable rate mortgages; variable rate mortgages not to be charged at more than 2% over base rate; early repayment penalties on fixed and capped rate mortgages to be stated in cash terms and kept low; no redemption charge after the fixed or capped period has ended; the mortgage can be kept when moving home provided the lender is happy to lend on the new property.

If a particular mortgage product does not meet the CAT standard, this does not necessarily mean that it is a poor product. It may be designed for certain people with particular requirements. However, the absence of the CAT mark should prompt borrowers to consider why a particular product's terms differ from the standard, and then to decide if these terms are suitable for them.

CHAPS

Clearing House Automated Payment System. The system which enables money to be transferred from one bank account to another on the same day.

Completion
The date (normally agreed at Exchange of Contracts) when the buyer's solicitor transfers the funds needed to complete the purchase of the property to the seller's solicitor. For remortgages, it is the date that the mortgage is transferred from one lender to another.

 

Conveyancing

The legal work involved in the purchase and sale of land or the transfer of a mortgage. This is usually, but not always, done by a solicitor or licensed conveyancer.

 

County Court Judgement (CCJ)

A ruling against a person who does not repay a debt, obtained in a county or higher court by the person or company owed the money. The order spells out the terms under which the person owing the money is required to repay it.

Credit Check

A report showing a person's use of credit, using information supplied by a Credit Reference Agency. Credit Checks provide information on credit card repayments, outstanding debts, past or current arrears, County Court Judgements and similar.

Credit Reference Agency

An organisation that stores and updates financial and public records information about the payment history of individuals who have received credit. Almost always used by lenders to check payment records before they will offer a mortgage.

Current Account Mortgage

A mortgage which combines a current bank account with the features of a Flexible Mortgage allowing overpayments and underpayments, payment holidays, and enabling cheques to be written from the mortgage account.

Debt Consolidation

The act of combing two or more outstanding loans into one lower rate loan. The new loan repays the old loans.

Deposit

The difference between the purchase price of a property and the amount being borrowed.

Disbursements

Legal and administrative costs payable to the Solicitor or Licensed Conveyancer, related to the purchase or remortgage of a property. Includes Stamp Duty, Search Fees, HM Land Registry fees, CHAPS Fees and so on. Disbursements do not include the Solicitor's fee for carrying out the legal work.

Discounted Rate

A variable rate set at a fixed percentage amount below the lender's standard variable rate for a period of time. At the end of the period, the mortgage reverts to the lender's variable rate.

Discounted Period

The length of time the Discounted Rate is payable. Can range from 6 months to several years.

Draw Down Facility

A facility which allows you to borrow additional funds under your existing mortgage agreement.

Early Redemption Penalty

A fee imposed by a lender if all or part of a mortgage is paid off before the expiry of a Fixed, Discounted or Capped Rate period or within a specified period for these and other products (such as Cash Back mortgages). These penalties typically equate to a number of months' interest, or to a percentage of the total loan amount. Also called Early Redemption Fee or Prepayment Penalty.

Endowment Policy

An investment product which may be assigned to an interest only mortgage and the proceeds used to pay off the capital at the end of the mortgage term.

Endowment Mortgage

An interest only mortgage with an endowment policy assigned to it. The borrower normally pays only interest during the term of the mortgage and pays separate premiums into an Endowment Policy that is designed to repay the mortgage at the end of the term, although not guaranteed. The Endowment Policy also provides life insurance to repay the loan if the borrower dies. See also Low Cost Endowment.

Equity

The difference between the market value of the property and the amount of the owner's mortgage on that property.

First Charge

A document which records a lender's or other party's contractual rights to title of a property over and above any other party(s) if the conditions of the legal charge are not met.

First Time Buyer (FTB)

Someone who has never previously owned a property. Some lenders also include applicants who have owned a property previously but have nothing to sell now and/or joint applicants where only one is a FTB.

Fixed Rate Mortgage

A mortgage where the interest charge rate does not change for a set period - usually a number of years or until a fixed date in the future. At the end of the period, the mortgage usually reverts to the lender's variable rate.

Fixtures

Items attached to - and therefore legally part of - a property. For example, built-in cupboards, sink, bath etc.

Flexible Mortgage

A mortgage which allows overpayments and underpayments on the mortgage without penalty, and, in some cases, to take payment holidays.

Freeholder

The person who owns the Freehold of a property.

Full Status – Mortgage

A mortgage where the lender requires proof of income and credit references in order to verify the applicant's ability to meet the mortgage repayments.

Ground Rent

A fee that a leaseholder has to pay the freeholder every year to provide certain services, for example, maintenance of the grounds in which the property stands.

Guarantor

A person who has opted to be legally liable for the repayment of a mortgage if a borrower fails meet repayments. Sometimes used to support a borrower with insufficient income to qualify for a mortgage.

High Loan To Value Fee

A fee charged by a lender if the mortgage amount is above a specified percentage of the property value (usually 75%-80%). Also known as Mortgage Indemnity Premium/Protection (MIP); Mortgage Indemnity Guarantee (MIG); Mortgage Indemnity Fee; Mortgage Guarantee Insurance (MGI); High Percentage Loan Fee; Additional Security Fee.

Home Buyer's Report

A surveyor's report which provides details concerning the condition of a property and its fixtures. See also Valuation and Structural Survey. A Home Buyers Report usually contains more detail than a Valuation Report and less detail than a Structural Survey.

Illustration

A document setting out the costs of a particular mortgage for a potential borrower, usually showing the monthly payments for the first five years, and the cost of all fees associated with that mortgage product.

Impaired Credit

The term applied to someone with a poor credit history owing to late mortgage or rent payments, County Court Judgements (CCJs) or bankruptcy.

Income Multiplier

The factor(s) by which lenders multiply one or more applicants' annual income to determine the maximum amount they are prepared to lend.

Income Reference

Written confirmation from an employer of an applicant's stated earnings. If self-employed, the applicant's accountant may be asked to confirm income either by letter or by providing audited accounts for a specified period.

Index Tracker

A mortgage type where the interest rate rises and falls in line with a particular published interest rate (usually the Bank of England Base Rate).

Individual Savings Account (ISA) Mortgage
An interest only mortgage which the borrower plans to repay using all or some of the proceeds from an Individual Savings Account.

Interest Only Mortgage

A mortgage which only requires the interest charged on the loan to be repaid during the term of the loan and the amount borrowed to be repaid at the end of the term (usually from the proceeds of an investment such as an endowment or pension policy). See also Endowment Mortgage, Pension Mortgage and ISA Mortgage.

Joint Income

The total income before tax of two people applying jointly for a mortgage with the intention of sharing responsibility for meeting the monthly repayments.

Land Registry Fee

A fee paid by the solicitor or licensed conveyancer to the Land Registry to record a change in the registered ownership of a property and/or land.

Landlord's Reference

A document provided to a lender by an applicant's current or previous landlord commenting on the applicant's ability to meet regular rent payments.

Leaseholder

Someone who owns the lease to a property.

Legal Charge

A document which records a lender's or other party's contractual rights to title of a property if the conditions of the legal charge are not met.

Legal Fee

Charges made by a solicitor or licensed conveyancer for carrying out conveyancing and other legal work in connection with a property purchase or remortgage.

Lender

A bank, building society, mortgage company, or other company offering a loan.

Lender's Fee

May include one or more of the following: Administration Fee; Arrangement Fee; Booking Fee; Completion Fee; Valuation Fee.

LIBOR-Linked Mortgage

LIBOR stands for London Inter Bank Offer Rate. The rate for this kind of mortgage is normally quoted as an amount above LIBOR. Although the LIBOR rate changes daily, the rate for a LIBOR linked mortgage will normally only be adjusted every three to six months.

Licensed Conveyancer

Someone who undertakes the legal work associated with buying, selling and remortgaging property. May be used instead of a solicitor.

Loan to Value (LTV)

The amount of a loan expressed as a percentage of the value of the property. For example, a mortgage of £90,000 on a property valued at £100,000 would be shown as 90% LTV.

Mortgage

A loan secured against a property and incorporating a document which records a lender's or other party's contractual rights to the title of a property if the conditions of the legal charge are not met.

Mortgagee

The mortgage lender.

Mortgage Code Arbitration Scheme

A scheme enabling disputes between individuals and member lenders to be resolved without court action.

Mortgage Deed

The legal document recording the existence of a mortgage on a property.

Mortgage Subsidy

A payment made by an employer towards an employee's mortgage payments.

Mortgage Term

The period over which a mortgage will be repaid.

Mortgagor(s)

The individual(s) taking out the mortgage.

Negative Equity

A situation where a property is worth less than the mortgage secured on it.

Non-Status Mortgage
A mortgage where the lender does not require proof of income or other references (at their discretion).

Offer Letter

A formal offer of mortgage by a lender stating the terms under which it agrees to lend money to an applicant.

Other Income

Income in addition to basic salary.

Other Outgoings

A catch-all phrase covering all types of expenditure other than those specifically mentioned.

Overpayments

Increased or additional mortgage payments made by the borrower usually to repay the mortgage early. Also sometimes called Excess Payments.

Part and Part Mortgage

A combination of a Repayment (Capital & Interest) and Interest Only mortgage.

Payment Holiday

A period of one or more months when the borrower does not make any mortgage repayments. Normally only available to borrowers with a flexible mortgage who have previously overpaid their monthly repayments.

Pension Mortgage

An Interest Only mortgage where the borrower plans to use some or all of the cash lump sum from a pension policy to repay the mortgage at the end of the term.

Portable

A mortgage that can be transferred to another property.

Previous Lender's Reference

A document provided by a lender outlining an individual's previous repayment history.

Principal

The amount of debt outstanding, excluding interest.

Quotation

A document showing the actual monthly cost of a particular mortgage (including any fees that have been added to the loan), based on the information supplied. The quotation also shows all other mortgage related expenses for a particular mortgage, such as estimated solicitor fees and survey costs.

Rate

The percentage interest rate charged by a lender.

Redemption

The process of paying off your mortgage in full. Occurs at the end of the mortgage term, when changing lenders, or when moving house and taking out a new mortgage with a different lender.

Redemption Amount

The amount of money required to repay the mortgage in full.

Redemption Charges

Fees charged by the lender to cover administration costs when a borrower pays off a mortgage. Sometimes includes Early Redemption Penalty.

Remortgaging

Changing mortgage lenders without moving house and in so doing, using the proceeds from the new mortgage to repay the old one.

Repayment Method

The means by which a mortgage is repaid. The two main repayment methods are Interest Only and Repayment Mortgage

Repayment Mortgage

A mortgage where part of the actual loan plus interest on the outstanding loan amount is repaid each month, gradually reducing the amount borrowed. A repayment mortgage guarantees to repay the total mortgage debt at the end of the mortgage term provided the correct monthly repayments are made on their due dates. Also called a Capital & Interest Mortgage.

Repayment Period

The number of years and months over which the borrower agrees to pay back the mortgage. Also called the Mortgage Term.

Retention

This is when a lender holds back or 'retains' part of the agreed mortgage until certain conditions have been met, for example receipt of warranties, carrying out of repairs or improvements, or, for new-build properties, reaching a key stage in the building program.

Right-To-Buy

The right of a tenant in a local authority owned property to buy the property, sometimes at a discount, the discount depending on length of tenancy.

Second Charge

A document which records a lender's or other party's contractual rights to title of a property if the conditions of the legal charge are not met.

Searches

Checks carried out by a Solicitor or Licensed Conveyancer with local authorities and other official organisations to ensure there are no planning proposals or other matters that could adversely affect the value of the property.

Self-Build Mortgage

A mortgage taken out on a property that is still under construction. The lender normally pays out the loan in stages to ensure that it doesn't at any stage exceed the value of the property at its current stage of building.

Self-Certification

The process of certifying your income to the lender by signed letter or declaration instead the lender acquiring references

Stamp Duty

A tax paid by the buyer when purchasing a property. The amount payable works on a sliding scale dependent upon (and calculated as a percentage of) the property price.

Standard Variable Rate

The default interest rate charged by lenders which is usually in line with a stated index, such as the Bank of England Base Rate. It rises and falls broadly in line with changes in the Bank of England Base Rate and is normally applied at the end of a 'special rate' period, such as a fixed, capped or discounted rate.

Stepped Rate Mortgage

A mortgage where the interest rate charged rises in stages over time.

Structural Survey

A detailed examination of a property's structural condition by a surveyor or other qualified person. A structural survey report will normally provide a full and detailed description of the structure, list all the defects and alert the recipient if a specialist report is needed, e.g. drainage, damp or subsidence. Also called a Buildings Survey or Full Structural Survey, and ranks higher than a Home Buyer's Report.

Survey Fee

The fee charged by a surveyor to carry out a Home Buyer's Report or Full Structural Survey on a property. May also incorprate the lender's Valuation Fee if you are using the same surveyor to carry this out.

Tie-in Period

The period you agree to stay with the lender for when you take up a special offer mortgage (Fixed Rate, Discount, Cash Back etc). These sorts of products normally commit you to staying at least until the end of any special rate offer, and sometimes for a period afterwards. If you decide to repay your mortgage during the tie-in period you will normally have to pay an Early Redemption Penalty.

Tracker

A product where the interest rate is set at a stated percentage above a published index rate, then rises and falls in line with that index.

Underpayment

A mortgage payment that is less than the amount normally required for that month. Usually only allowed for borrowers with flexible mortgages or by prior arrangement with the lender.

Valuation

Not to be confused with a survey. A Valuation is report for the lender's own use stating the current value of the property and other information concerning the state of repair, the area, etc. See also Home Buyer's Report and Structural Survey.

Valuation Fee

A fee paid to the lender to cover cost of the Valuation.

Value

The price that a property would in normal circumstances be expected to sell for in prevailing market conditions. Normally determined by an estate agent familiar with the local property market.

Variable Rate Mortgage

A mortgage whose interest rate rises and falls roughly in line with a stated index, such as the Bank of England Base Rate.